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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per:Anikesh Banerjee, JM: The instant appeals of the two assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals)-2, Jalandhar, [in brevity the ‘CIT (A)’] order passed u/s 250 (6) of the Income Tax Act 1961, [in brevity the Act] order for A.Y. 2016-17.The impugned orders are emanated from the order of the ld. ITO (Exemption) Ward Jalandhar, (in brevity the AO) order passed u/s 143(3) of the Act.
At the outset, both the appeals of the assessees are identical in nature and have a common factual issue. With the consent of the ld. counsel for the assessee we have taken is taken as a lead case.
The assessee has taken the following grounds:
“1. The First Appellate Authority has erred in holding that the proviso to section 2(15) of the Income Tax act is attracted to the assessee and exemption u/s 11 of the Income Tax act is not allowed without appreciating and acknowledging the facts of the case that the appellant is not doing any activity in nature of trade, commerce or businesses as appellant is just doing the function of Public welfare in &14/Asr/2020 3 A. Y.: 2016-17 the form of community policing which is delegated to the appellant by the State Government.
2. The First Appellate Authority has erred in holding that the appellant has not incurred any expenditure on any welfare services for the general public without considering the fact that the appellant society was formed to provide community policing services in effective and time bound manner to general public and expenses during the year were being incurred on the attainment of the same objects of the society.
3. The First appellate authority has erred in holding that the appellant is working on commercial purpose as fees is charged for providing the services without appreciating and acknowledging the facts that very minimal charges are collected by the society which are also notified and approved by the Punjab Government with the intention to meet the expenses of the society and not with the intention to earn profit.
It is Prayed that the order of Ld. CIT (Appeals) Jalandhar-2 be set aside and demand of Rs 23446/- (including the interest of Rs 5808/- u/s 234B of the Income Tax act) be dropped in the interest of justice .
5. The Appellant craves leave to add or amend any grounds of appeal
in course of proceedings if need arises.”
4. Brief fact of the case is that the assessee is a Society registered under the Society Registration Act, (XXI of 1860 and as amended by the Punjab Amendment &14/Asr/2020 4 A. Y.: 2016-17 Act, 1957 vide No. KPT/ARS/1379 of 2010 dated 01.10.2010. The assessee society is registered under section 12AA(1)(b)(i) of the Act, and had claimed exemption under section 11 of the Act in respect of its income. The assessee Society was pursuing charitable activities by running Suvidha Centre for general public by organizing and participating in awareness campaigns against drug abuse and addiction, spreading traffic awareness in general public, rendering service related to passport and visa related services, police clearance certificate, issuance of copy of NOC, issuance of documents and arms license verification etc. and has declared total income/receipts of Rs. 12,62,631/- as against which amount applied on account of revenue expenditure stands at Rs. 12,05,551/- and thus, excess of income over expenditure at Rs. 57,080/- has been declared. The ld. AO considering the activities of assessee first determined the violation of section 2(15)and had rejected the claim of deduction U/s 11 r.w.s. 13(8) of the Act. The entire surplus amount to Rs. 57,080/- is added back with total income. Aggrieved assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) upheld the order of the ld.AO.
Being aggrieved assessee filed an appeal before us.
The ld. Counsel for the assessee submitted the written submission which is kept in the record. The ld. counsel specifically mentioned that though the assessee &14/Asr/2020 5 A. Y.: 2016-17 had taken the minimum charges from the civilians for community work, but entire issue is related to a charitable in nature. The ld. counsel invited our attention in the order of the ld. AO page 7 of the assessment order which is extracted as below: “12(a) It will be pertinent to mention here that the jurisdictional ITAT i.e. Hon’ble ITAT, Amritsar Bench, Amritsar, in the case of M/s Sukhmani Society for Citizens Services, Mansa, (the Society which is carrying out activities like being carried out by assessee under consideration i.e. providing services and in lieu, charges are being collected) has held that the Society is not engaged in any type of Charitable Activity (2012) 27 taxman.com 199 (Asr) {(2013) 153 TTJ 235 (Amritsar)} 13. In view of the above, it is held that the case of the assessee is covered by proviso to section 2(15) and hence, does not fall within the category of a charitable organization. Accordingly, for the year under assessment, benefits under section 11 of the income-tax Act, 1961 cannot be allowed to the assessee in accordance with provisions of section 13(8) of the Income-tax Act, 1961. In view of the above, it is seen that the assessee has receipts arising out of the activity in the nature of business or commerce and accordingly provision of section 2(15) are not applicable.
Since the assessee has receipts arising out of activities in the nature of business and commerce and accordingly, the activities of the society does not come under the definition of charitable purposes as &14/Asr/2020 6 A. Y.: 2016-17
defined in section 2(15), assessee is not entitled for claim of exemption under section 11 of the Income-tax Act, 1961 as provided under section 13(8) of the Income-tax Act, 1961 and therefore, the entire surplus of Rs. 57,080/- as declared in Income & Expenditure statement of the assessee is assessed as income of the assessee and accordingly, addition of Rs. 57,080/- is being made to the total income of the assessee. As the assessee has furnished inaccurate particulars of its income by claiming patently wrong claim of exemption in its return of income, penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income of Rs. 57,080/-are being initiated separately.”
5.1 The ld. counsel for the assessee further argued that the entire assessment was made on basis of the order of Sukhmani Society for Citizens Services , Mansa, (2012) 27 taxman.com 199 (Amritsar) . The order of the ITAT, Amritsar bench is factually not relevant in the assessee’s case. The ld. counsel for the assessee in argument placed that the object of the assessee is charitable in nature, only one issue of the object is that the collection of fees from the civilians over the community services. 5.2. The ld. Counsel further relied on the Hon’ble Court of Gujrat in the matter of DCIT, Exemption Vs. Sabarmati Ashram Gaushala Trust, Tax Appeal No. &14/Asr/2020 7 A. Y.: 2016-17 1162 of 2013, order dated 15/01/2014where the Sec 2(15) is construing the term ‘business’ which is intended for the purpose of interpreting and applying the first provisio to section 2(15) of the Act.
The ld. Sr. DR vehemently argued and relied on the order of the revenue authorities. The ld. Sr. DR invited our attention in order of the ld. CIT(A) page 16 para 4.5 which is extracted as below: &14/Asr/2020 8 A. Y.: 2016-17 &14/Asr/2020 9 A. Y.: 2016-17
We heard the rival submission and considered the documents available in the record. The revenue authorities first pointed out that from the financial statement of the assessee it is not clear that the assessee is doing any charitable work. The eligibility for deduction u/s 11 for community work for collection of facilitation charges is not under the purview of the Act. &14/Asr/2020 10 A. Y.: 2016-17 7.1 In appeal order, the appellate authority reproduced the income and expenditure account of the assessee. Whereas, no such charitable work is reflected in collection of facilitation charges. We respectfully considered the order of Hon’bleCourt of Gujrat in the matter of DCIT, Exemption Vs. Sabarmati Ashram Gaushala Trust, supra. The same factual aspect is duly settled by the Hon’ble Apex
Assistant Commissioner of Income-tax Court in the case of the (Exemptions)v.Ahmedabad Urban Development Authority, [2022] 143 taxmann.com 278 (SC). The relevant paragraph is extracted as below.
H. Application of interpretation H. At the cost of repetition, it may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit. The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the assessee's activities amount to trade, commerce or business" based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of "trade, commerce or business", then it must be examined whether the quantified limit (as amended from time to time) in proviso to section2(15), has been breached, thus disentitling them to exemption.”
Accordingly, we remit back the ground of the assessee to ld. AOfor adjudication, de novo in the light of the order of Hon’able Apex Court, as discussed in paragraph 8.1 of the order of ITAT. In is mutatis mutandis applicable for ITA 14/Asr/2020 and follows accordingly. &14/Asr/2020 11 A. Y.: 2016-17
In the result, both the appeals of the assessee bearing &14/Asr/2020 are allowed for statistical purpose.